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Wellons, Inc. v. Eagle Valley Clean Energy, LLC

United States District Court, D. Colorado

July 24, 2017

WELLONS, INC., an Oregon corporation, Plaintiff,
v.
EAGLE VALLEY CLEAN ENERGY, LLC, a Utah limited liability company, EVERGREEN CLEAN ENERGY CORPORATION, a Colorado corporation, CLEARWATER VENTURES, LLC, a Utah limited liability company, DEAN L. ROSTROM, individually, KENDRIC B. WAIT, individually, WESTERN RESOURCES, LLC, a Utah limited liability company, COLORADO FORESTRY FUNDING, LLC, a Delaware limited liability company, and WEST RANGE FOREST PRODUCTS, LLC, a Colorado limited liability company, Defendants. EAGLE VALLEY CLEAN ENERGY, LLC, EVERGREEN CLEAN ENERGY CORPORATION, and CLEARWATER VENTURES, LLC, Counterclaimants,
v.
WELLONS, INC., Counterclaim defendant. EAGLE VALLEY CLEAN ENERGY, LLC, EVERGREEN CLEAN ENERGY CORPORATION, and CLEARWATER VENTURES, LLC, Third-party plaintiffs,
v.
WELLONS GROUP, INC., and MARTIN NYE, Third-party defendants. GCUBE INSURANCE SERVICES, INC., a California corporation, Plaintiff,
v.
WELLONS, INC., an Oregon corporation, Defendant.

          ORDER ON PLAINTIFF'S MOTION RE ENTRY OF FINAL JUDGMENT

          R. Brooke Jackson, United States District Judge

         On June 5, 2007, at the conclusion of a two week trial, the jury rendered its verdicts (1) in case no. 15-cv-1252-RBJ, in favor of the plaintiff, Wellons, Inc., on plaintiff's breach of contract claims against defendants Eagle Valley Clean Energy, LLC and Evergreen Clean Energy Corporation, and awarding the same $10, 840, 000 in damages against both defendants; (2) in case no 15-cv-1252-RBJ, in favor of Eagle Valley Clean Energy, LLC, Evergreen Clean Energy Corporation and related individuals and entities on plaintiff's fraudulent transfer claim; and (3) in consolidated case no. 15-cv-02055-RBJ, in favor of defendant Wellons, Inc. and against plaintiff GCube Insurance Services, Inc. See ECF Nos. 367 and 368 (unredacted), 369 and 370 (redacted).

         On June 7, 2017, at the Court's request, the Courtroom Deputy circulated a draft form of judgment prepared by the Court for comments by counsel.[1] Both Wellons and the Eagle Valley defendants disagreed with certain aspects of the draft as it related to case no. 15-cv-1252-RBJ. GCube indicated that it no objection to the form of judgment as it related to case no. 15-cv-02055-RBJ.

         The Court here addresses the post-trial issues raised by the parties to case no. 15-cv-1252-RBJ. The issues have been briefed. See ECF Nos. 355, 377, 378, 379. Neither party has requested oral argument. The Court finds that it is sufficiently informed about the disputed issues to resolve them on the briefs.

         A. Interest.

         The first dispute concerns whether interest should be awarded on Wellons' verdicts against Eagle Valley Clean Energy, LLC and Evergreen Clean Energy Corporation. I will at times refer to Eagle Valley Clean Energy, LLC as “Eagle Valley;” to Evergreen Clean Energy Corporation as “Evergreen;” and to the two entities collectively as the “Eagle Valley defendants.”

         1. The principal amount claimed under the contracts.

         In December 2011 Wellons contracted to construct a wood-fired electricity cogeneration facility for Eagle Valley. See Amended and Restated Engineer, Procure, and Construction Contract (the “EPC Contract”), Trial Exhibit (hereafter “Ex.”) 17. Because Wellons later assisted Eagle Valley with construction financing until other financing, including a substantial government grant, was obtained, Wellons obtained a Subordinated Promissory Note dated August 8, 2013 from the related party, Evergreen. Ex. 3.

         Wellons achieved what it believed to be “Final Completion” of the construction project on March 20, 2014. However, Evergreen had not yet received the government funds, which were critical to its ultimate financing obligation. On or about May 1, 2014 Evergreen received the government funds. Despite that, neither Eagle Valley nor Evergreen paid the amounts owed under the EPC Contract and the Subordinated Promissory Note, claiming that the construction was defective and incomplete. Efforts to resolve the dispute over the ensuing several months were unsuccessful. On October 2, 2014 Wellons submitted a formal written demand for payment within seven days of the funds it claimed to be owed under the contracts. Ex. 55. No payment was made, and this lawsuit followed.

         At trial the parties stipulated that the maximum principal amount Wellons could recover under either or both of the EPC Contract and the Subordinated Promissory Note was $10, 841, 166.80. ECF No. 365 at 10 (Instruction No. 8, ¶¶2, 4). In the verdict form, with the approval of both parties, the maximum amount claimed by Wellons under both contracts, exclusive of interest, was rounded off to $10, 840, 000. See Verdict I, ECF No. 367 (unredacted), No. 369 (redacted), at 2, 3. That amount was awarded by the jury to Wellons against Eagle Valley on the EPC Contract and against Evergreen on the Subordinated Promissory note. Id.

         2. Interest claimed under the contracts.

         The EPC Contract provides that late payments by Eagle Valley “shall incur a simple interest charge at the legal rate of five percent (5%) per annum.” Ex. 17 at 50, ¶XI(B)(2). The Subordinated Promissory Note provides that Evergreen would repay Wellons' advances plus interest “promptly following the initial funding under the RUS Financing but in no event later than two (2) years from the date hereof.” Ex. 3 at 2. The RUS Financing refers to government funds. The interest rate provided in the Subordinated Promissory Note was 15.0% percent per annum on Wellons' Initial Advance in the amount of $5, 352.675; 15.0% on Wellons' Intermediate Advances in the amount of $3, 000, 000; and 0% on Wellons' Final Advances in the amount of $3, 389, 600. Id. at Schedule 1.1.

         During the trial Wellons' Chief Financial Officer, Robert Harold Moore, calculated what he believed to be interest due on the contract claims. An unedited realtime transcript of his testimony was filed by the Eagle Valley defendants at ECF No. 378-2. His calculations are documented in Ex. 107A, submitted as ECF No. 378-3.

         Mr. Moore began by breaking the $10, 841, 166.80 principal amount into two parts: (1) $7, 920, 264.24, which he characterized as “Initial and Intermediate Advances at 15%” (referring obviously to the interest rate provided in the Subordinated Promissory Note for the first two levels of Wellons' advances), and (2) $2, 920, 902.56, which he characterized as “Final Advances (Retention).” ECF No. 378-3. He used October 1, 2014 as his “Start Date” and April 30, 2017 as a “Current End Date.” He applied the 15% rate to the $7, 920, 264 component. However, he applied an 8% rate to the $2, 920, 902.56 component.

         When asked to explain the 8% rate he testified that it is the “statutory amount that's allowed in Colorado.” ECF No. 378-2 at 112. He did not use the 0% rate provided in the Subordinated Promissory Note for the third level of Wellons' advances. He likewise did not mention the 5% late payment rate provided in the EPC Contract, apparently believing that it was subsumed within the larger rate provided by the Subordinated Promissory Note.

         Mr. Moore then added a category he labeled “Past Due/Pre-Construction Financing interest - as of 8/16/13, ” using the 8% rate for that category. ECF No. 378-3. He testified that August 16, 2013 was the date when Eagle Valley obtained construction financing from Deutsche Bank, and that this category amounted to “interest on past due interest.” ECF No. 378-2 at 111-12. Finally, he added a category labeled “Preferred Debt Interest on Initial & Interim Advances as of 09/30/14, ” at 15%. ECF No. 378-3. He explained that that was “the bridge loan or the preferred debt based on the advances made to Evergreen on the capital contribution agreement.” Id. Moore's grand total of principal and interest of April 30, 2017 was $17, 629, 535.35. Id.

         It is hard to understand, even in retrospect, why Mr. Moore believed that he could use an 8% rate that was not provided in either contract and that was contrary to the 0% rate provided for the third tier of advances in the Subordinated Promissory Note. Presumably he (or whoever was advising him) was referring to the 8% interest rate provided at Colorado Revised Statutes § 5-12-102(2). But, that rate applies only where there is no agreement in the contract to a rate, see C.R.S. § 5-12-102(1). Moreover, both contracts provide that they will be governed by Utah law. Ex. 17 at 73; Ex. 3 at 2. Even apart from the erroneous inclusion of the Colorado 8% rate in his figures Mr. Moore's analysis was, at best, difficult to understand and to relate back to either of the parties' contracts.

         Nevertheless, in his closing argument Wellons' counsel asked the jury to award the stipulated maximum principal amount of $10, 840, 000 plus interest as calculated by Mr. Moore. This was consistent with his opening statement in which he had informed the jury that Wellons claimed “over $17 million which includes accrued interest.” ECF No. 378-1 at 2-3, 4. Specifically, the verdict form, as is pertinent to the present discussion, asked the jury to answer the following questions:

3. What was the amount of damages incurred by Wellons as the result of Eagle Valley's breach of contract (the maximum amount, not including interest, is $10, ...

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